Pay off debt, buy a house, save for retirement -- these are common financial goals we hear all of the time. While they’re important, there’s something we all seem to be missing.
Enter the Liberty Fund. Here at myWorth, we think this is a staple of any financial plan. A liberty fund allows you access to money when you need it. It gives you the freedom to make choices during times of challenge, opportunity or change without compromising your financial future.
For example, what would you do if a great investment opportunity came up and you really wanted in? Or if you couldn’t stand to be in your job for one more second and you wanted out so that you could start that business you’ve been dreaming of? Or, you need to leave a bad relationship?
Having a liberty fund allows you the freedom to make those choices that work best for you without having to dip into your other savings or worse, go into debt.
To get started, we wanted to answer some questions we commonly get so you better understand the importance of a liberty fund.
How much should I have in my liberty fund?
Great question. We recommend having 6 months worth of living expenses saved in your liberty fund. A portion (10-20%) of this money should be easily accessible, meaning you can make get to it immediately. Another portion (80-90%) may be separated so that it takes a few days to get it.
This allows you to truly think about the reasons for this money before you spend it (i.e. keeps you from making that spontaneous purchase). Having a liberty fund allows you the freedom of knowing you can live off of this money while you work through whatever else is going on in your life.
What’s the best way to start?
Start small. We know you have other financial goals that are important to you and you should also be working towards. Evaluate your current financial situation and see what areas you can cut back so you can put that money towards your liberty fund.
Continue to grow this money as time goes on, and you can do this by having the mindset of always paying yourself first. Then, adjust the rest of your life to live on what is remaining. Many people think they can save with whatever is leftover at the end of the month, once all the bills are paid. But, often by then, there is little to nothing left. Paying yourself first keeps you from falling into that trap. And when you do this, you’ll be surprised how quickly this money can grow.
You can also start a direct deposit into your savings, put bonus money directly into this account, use credit card rewards like cash-back and put that into savings, or even pick up a side hustle.
When should I use my liberty fund?
Use this money only if you have no other options. Think of your liberty fund as an account that will save you from going into debt when something unexpected arises. That could be a medical emergency, a loss of a job, a car accident, a change in relationship, or an opportunity that could change your life.
If you didn’t have access to a liberty fund, you’d likely have to use your credit card which could put you in more debt over time because you’ll rack up money with the interest rates. Or you might stop other long term savings to make up for the event, only putting you further behind from reaching your goal.
We strongly urge you to build this safety net, so that whatever road bumps you hit along the way you’ll be more than prepared. Everyone deserves to feel the peace of mind that having a liberty fund gives you.
Ande began her 20+ year career as an adviser and quickly realized that many people weren’t taking into account was how emotions play a huge factor in financial decision making. Leaving behind her practice to focus solely on educating both advisers and consumers alike, she became an expert in behavioral finance. Author, speaker, thought leader, and money educator, Ande is helping women to take control of their money.
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